More webcast consolidation: Yahoo sends LAUNCHcast to CBS

Despite Congress allowing for more time to negotiate better royalty rates, …

Congress may have done its part to sort of save Internet radio back in September, but the higher webcasting royalties that land in February 2009 are resulting in an industry shakeout. Yahoo today announced that it is handing over the reigns of its LAUNCHcast web radio network to CBS Corp.

The battle over an extreme hike in royalty rates for webcasters has been raging for over a year and a half now. In early 2007, the Copyright Royalty Board, an arm of the Library of Congress, proposed a new flat, per-streamed-song fee that would not only double in price over the next five years, but would apply retroactively for all songs streamed back to 2006. This new royalty structure, which traditional radio broadcasters lobbied heavily for, would bankrupt most webcasters out of existence. Congress finally got involved, and in September it passed the Webcaster Settlement Act of 2008 that, despite its decisive name, merely extended the royalty deadline to February 2009. Extra time isn't the silver bullet that webcasters were probably hoping for, but it at least gives them the breathing room they need to try and negotiate more reasonable deals with the labels.

Regardless of the deadline extension, Yahoo has become the second major webcaster to hand its network, LAUNCHcast, over to a third party. In fact, Yahoo picked the same sugar daddy that AOL did for its struggling AOL Radio service back in June this year: CBS. After a series of web-related acquisitions in the past couple of years, including music community Last.fm in 2007, Wallstrip.com, and being the first national broadcaster to distribute content on Joost, CBS is gunning for a music presence on the web in a major way.

LAUNCHcast's merger into CBS Radio will happen in February. While Yahoo employees will continue to manage the service's 150 channel catalog, CBS Radio will power and sell advertising for the network. Further, some of Yahoo's high-trafficked news and sports sections will adopt big-hitting CBS stations like WFAN in New York and KNX-AM in Los Angeles.

Of course, Yahoo arguably shot its LAUNCHcast service in the foot through negligence this year during its flailing in the aftermath of a failed Microsoft takeover attempt. By October, LAUNCHcast's base had shrunk to 2.9 million US users (a loss of 43 percent from the year before), while Pandora, an Internet radio competitor, has grown by 58 percent to 5.3 million users. Yahoo aims to shave $400 million from its operating costs, and salvaging LAUNCHcast on its own clearly wasn't in its sights.

In light of an official recession and the looming royalty hike in February 2009, though, Yahoo's move could be among the first in a new wave of webcaster consolidation. Yes, smaller webcasters may still be able to negotiate better deals, but many of these companies, including even Yahoo, were already operating on thin profit margins in the first place.